Security characteristic line
# Security characteristic line

Security characteristic line (SCL) is a regression line, plotting performance of a particular security or portfolio against that of the market portfolio at every point in time. The SCL is plotted on a graph where the Y-axis is the excess return on a security over the risk-free return and the X-axis is the excess return of the market in general. The slope of the SCL is the security's beta, and the intercept is its alpha.

## Formula

    $\mathrm {SCL} :R_{i,t}-R_{f}=\alpha _{i}+\beta _{i}\,(R_{M,t}-R_{f})+\epsilon _{i,t}$

where:

    $α_i$ is called the asset's alpha (abnormal return)
    $β_i(R_{M,t}$ – $R_f)$ is a nondiversifiable or systematic risk
    $ε_{i,t}$ is the non-systematic or diversifiable, non-market or idiosyncratic risk
    $R_{M,t}$ is the return to market portfolio
    $R_f$ is a risk-free rate
